German Bunds jump to three-week highs on U.S. growth concerns

* German Bunds extend gains on weak non-farm payrolls

* Focus turns to upcoming European business surveys

* Strong euro may limit any Bund pull-back

By Emelia Sithole-Matarise and Marius Zaharia

LONDON, Oct 23 German Bund futures hit
three-week highs on Wednesday, extending this week's gains on
the back of below-forecast U.S. jobs data that raised
expectations the Federal Reserve would delay trimming its bond
purchases.

The numbers released on Tuesday showed recovery momentum in
the U.S. economy was weaker than anticipated even before
October's 16-day government shutdown caused by a political spat
over the budget and the public borrowing limit.

An 11th-hour deal to lift the debt ceiling allowed the
government to reopen but provided funds only until Jan. 15,
raising the spectre of another budget battle early in 2014.

The political uncertainty is likely to have a detrimental
impact on growth and therefore prompt the Fed to hold off on
plans to scale back its $85 billion monthly purchases of
Treasuries and mortgage-backed securities.

Before the shutdown, expectations for when the Fed might
"taper" its bond-buying tilted towards the end of the year, but
have since been pushed back to early 2014.

The September jobs report has cemented those expectations
ahead of the Fed policy meeting next week.

"Yesterday's data was not affected by the shutdown yet it
was pretty weak, suggesting perhaps that the U.S. economy could
be losing a bit of traction in the third quarter and that the
Fed may find it hard to taper in December," said Gianluca
Ziglio, head of fixed income research at Sunrise Brokers.

"Investors are going to pay little attention to stronger
data, especially the delayed data, and more to weaker data ...
so there's room for the market to rally a little bit further."

Bund futures settled 32 ticks up on the day at
140.86, having earlier hit a three-week high of 140.91. They
have risen almost two points in the past week.

Cash 10-year German yields fell to their
lowest since early October at 1.769 percent. Ziglio said the
yields could tumble another 5-10 basis points to trade below
September low of 1.694 percent.

A sale of German 30-year bonds had limited market impact as
it received bids above market prices, easing concerns about a
drop in demand.

FOCUS BACK ON EUROPE

October jobs data on Nov. 8 may give markets a better idea
about the impact of political uncertainty on the U.S. economy,
but until then, the focus may turn back to Europe.

Traders will be parsing euro zone manufacturing and services
PMIs due on Thursday followed by the German Ifo business
sentiment survey on Friday. Strategists said
neither was likely to knock Bunds significantly lower.

Weak numbers would suggest the euro zone recovery is also
losing momentum, enhancing the appeal of top-rated German debt.
But good numbers might further strengthen the euro currency,
raising the risk of policy easing by the European Central Bank.

"I would have thought a strong euro would bring inflation
even lower, raising chances for a policy reaction," one trader
said. "It's a potential supporting factor for Bunds."

The euro is trading at two-year highs against the dollar
, while euro zone inflation was 1.1 percent in September,
way below the ECB's target of close to 2 percent.

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